How the DIFC became the largest hedge fund management hub in the MEASA region

MUNEER KHAN, PARTNER, MIDDLE EAST REGIONAL HEAD, SIMMONS & SIMMONS

The Dubai International Financial Centre (the DIFC), a financial free zone within the Emirate of Dubai, is the largest financial services centre in the Middle East, Africa and South Asia (MEASA) region. In recent years, a growing number of hedge fund managers have been attracted to the DIFC as a result of various pull and push factors. As a result, the DIFC has rapidly emerged as the largest hedge fund management hub in the MEASA region and continues to experience exponential growth.

A significant accelerant for this influx of asset managers was the COVID-19 pandemic. Whilst some financial hubs like London, Hong Kong, Singapore and New York were subject to significant COVID restrictions and stringent lockdowns, Dubai took a more balanced approach (combining a strategy of rapid vaccine rollouts, social distancing measures, open borders and remaining open for business). This resulted in many people relocating, including hedge fund portfolio managers.

The UAE’s favourable tax regime (in particular, there is no personal income tax) has also been a key driver, especially when this is contrasted with the global rise in living costs and tax rises. In the global war for talent, having the ability to offer the option of a Dubai office is often becoming a decisive factor. This is particularly the case for the multi-strategy, multi-manager platforms, more and more of whom have been setting up a significant presence in the UAE.

The UAE “golden visa” scheme, which is a five or tenyear self-sponsored renewable residence visa scheme for “specialised talents” and investors has also been a draw for founders, senior managers and certain specialised finance professionals, such as quants. The UAE has a multi-faceted regulatory landscape. Financial services such as financial promotion, advice, arranging deals or asset management, are usually undertaken from one of the jurisdictions of (i) “onshore” UAE, (ii) the DIFC or (iii) the Abu Dhabi

Global Market (the ADGM), each of which has its own financial laws and regulations. The DIFC and the ADGM are financial free zones that were formed to encourage foreign investment by offering concessions such as zero tax guarantees and complete foreign ownership of entities.

This diverse landscape ultimately provides a number of options for alternative asset managers wanting to relocate. The DIFC in particular has gained international recognition and critical mass as a world-class financial centre and is seen as an example of how governments in emerging markets around the world can potentially fast track legal and regulatory reform.

It is clear that the UAE and especially Dubai is now at the top of the list for some of the world’s largest alternative asset managers and their talent, who increasingly see it as a longer-term home for them and their families. Though one can never predict the future of global markets, especially in current times, based on our own pipeline of applications, we expect the speed at which hedge fund managers have entered and set up in the DIFC and wider UAE to continue for the rest of 2023 to 2024.

Muneer Khan, Partner, Middle East Regional Head, Simmons & Simmons

In his capacity as the Middle East managing partner and head of financial markets at Simmons & Simmons, Muneer Khan has been closely involved in advising a large number of leading international hedge fund managers on their strategies for Middle East establishment and expansion. In this context, he has also worked closely with regulators and financial centre authorities, such as the DIFC Authority, on key policy and strategy issues to facilitate growth in the asset management sector.